Report: Global FinTech Investment Will Grow to at Least $6 Billion by 2018

Investment in fintech ventures is on the rise, and banks are helping drive it by investing in startups that could help solve their IT problems.

Financial services technology has become one of the fastest growing areas for venture capital investment, according to a study released by Accenture and the Partnership Fund for New York City. Global investment in financial services technology ventures tripled since 2008, growing from $928 million in 2008 to $2.97 billion last year, the study found. That investment will increase to an estimated $6-8 billion by 2018, the study predicted.

Worldwide venture capital investment in fintech has grown four times faster than the rate of overall venture capital investment in the last three years, according to the study. The first quarter of 2014 saw a record investment in fintech ventures of $1.7 billion, with 167 deals closed.

The report attributed that fast growth to the convergence of several factors in the technology and banking space, such as the spread of open source and cloud-based technologies that help cut costs for new startups, and the need for banks to cut costs as tougher capital requirements take effect. Some of the areas seeing the biggest boom in fintech investment include mobile, data and analytics, cloud and cyber security, the report found.

The U.S. is by far the biggest market for fintech venture capital investment, making up 83% of the global market, according to the report. Silicon Valley still gets the biggest share of that investment, but New York City is quickly catching up, with fintech investment there growing twice as fast as Silicon Valley over the last five years.

Banks have begun to recognize the opportunity to work with and invest in startups, with several major financial institutions developing their own innovation labs and venture capital funds for investing in startups.

“Financial services-sponsored venture capital investment will continue to grow as institutions recognize that a go-it-alone approach of in-house development isn’t enough,” Jaidev Shergill, head of digital venture investing at Capital One, which launched its own fintech venture capital fund last year, said in the report.

Jonathan Camhi has been an associate editor with Bank Systems & Technology since 2012. He previously worked as a freelance journalist in New York City covering politics, health and immigration, and has a master's degree from the City University of New York's Graduate School ... View Full Bio

When we discuss disruption in financial services we tend to focus on the new competitors that have the potential to disrupt the banking business itself. This trend suggests that disruption can also occur on the vendor side -- established solutions providers also can be vulnerable to new and non-traditional players coming into the market. Established vendors have their own legacy products, after all. Sometimes the new players are very focused on some developing areas, such as mobile, offers, social, etc. Sometimes they benefit from a "cool factor" that established players don't have. Obviously not all of these market entrants will succeed -- and some of them ultimately will be acquired (or at least are hoping they will be) by established players. However, we've already seen over the past couple of years further consolidation in fintech. With growing investment in fintech startups, it looks to be a very fluid market. That will present a lot of opportunities to banks, but also challenges around ROI, vendor/resource management, etc.